Answer to Question #174784 in Microeconomics for Vinti

Question

 During the Covid-19 pandemic, the Ayurvedic medicines have an inelastic demand and 

electronic devices have an elastic demand. Imagine that technological advancement 

doubles the supply of both products (i.e. quantity supplied at each price is twice as it was 

earlier)

i. What will be the equilibrium price and quantity in each market?

Answer 1

Ayurvedic medicine:

In inelastic demand buyers demand for a product does not change as much as its price changes.

Suppose we take the equilibrium price of the good to be p and the equilibrium quantity to be q.

Even with the income effect created due to the double supply at the same price, the quantity demanded for the medicine remains constant. 

Electronic devices:

In elastic demand the change in quantity demanded due to change in price is large.

Following the income effect the buyers demand more.The equilibrium quantity of the good may shift upto 2q .